Show all in GRAPH!! 1.Explain the effect of consumers becoming more budget conscious along with the...

Show all in GRAPH!!

1.Explain the effect of consumers becoming more budget conscious along with the rising price of solvent on the price of dry cleaning.

2. If the price of hangers does rise this year, do you expect additional dry cleaners to disappear? Explain why or why not.

Solutions

Expert Solution

1. Consumers becoming more budget conscious means that the demand for dry cleaning decreases and the demand curve for dry cleaning shifts leftward. Combined with the decrease in supply from rising solvent prices, the equilibrium quantity of dry cleaning decreases. The effect on the equilibrium price of dry cleaning is however ambiguous. If the decrease in supply exceeds the decrease in demand, the price rises; if the decrease in supply is less than the decrease in demand, the price falls; and if the decrease in supply equals the decrease in demand,the price does not change.

2. The increase in the price of hangers raise the costs of dry cleaners but if the cost increase is small then the decrease in supply is also small, which means that the decrease in the equilibrium quantity of dry cleaning also is small. If the small decrease in the equilibrium quantity leads some additional dry cleaners to close, the number will be small.

Note: For graph- additional information is required in the question.

Rahul Sunny answered 1 year ago

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